PUBLIC SERVICE COMPANY OF NEW MEXICO
2001 OFFICER INCENTIVE PLAN
INTRODUCTION
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This plan serves as comprehensive single source of information about the Public
Service Company of New Mexico ("PNM") annual incentive program for company
officers. It describes the objectives of the plan, its various elements, and how
they function. If you have questions that are not addressed by this document,
please direct them to your manager.
Note: Upon final approval and formation of the new Holding Company, this plan
will become the Manzano Corporation Officer Incentive Plan.
PLAN OBJECTIVES
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The plan is designed to:
o Attract, motivate and retain key officer talent in a competitive business
environment.
o Link the interests of officers with those of our shareholders through
short-term incentives.
o Align total short-term cash compensation opportunities with competitive
practices.
o Reinforce a total compensation mix for officers that is risk/reward oriented.
o Customize the plan to meet the needs of specific business segments within
Manzano Corporation.
EFFECTIVE DATES
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The plan is effective from January 1, 2001 through December 31, 2001 (the "Plan
Year"). The Compensation and Human Resources Committee (the "Committee") of the
Board of Directors (the "Board") reserves the right, however, to adjust, amend
or suspend the plan at its discretion during the Plan Year.
ADMINISTRATION
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o Plan Year Goals
At the beginning of the Plan Year, after considering the recommendations of
management, the Committee will approve the corporate goals against which
performance will be measured for the Plan Year. The corporate and individual
/ unit performance goals will be communicated to all eligible participants
as soon thereafter as feasible.
o Incentive Award Approvals and Payout Timing
Shortly after the end of the Plan Year, the Committee or the Board will, in
its sole discretion, determine the final performance results that will be
used to determine awards, if any. Awards will be distributed by check to
eligible participants following such approval during the first quarter
following the end of the Plan Yea, normally with the last paycheck in
February.
ELIGIBILITY
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All officers of the company are eligible to participate in the plan.
o Pro Rata Awards for Partial Service Periods
Pro rata awards for the number of months actively employed at each
eligibility level during the Plan Year will be paid to the following
participants at the time awards are paid to all participants: (Note: Any
month in which a participant is actively on the payroll for at least one
day will count as a full month.)
- Participants who are newly hired during the Plan Year.
- Participants who are promoted, transferred or demoted during the Plan
Year.
- Participants who are on leave of absence for any full months during the
Plan Year.
- Participants who are impacted or leave the company due to retirement
during the Plan Year.
- The spouse or legal representative of a deceased participant.
o Forfeiture of Awards
Any participant who terminates employment on or before awards are
distributed for the Plan Year for any reason other than those stated above
(e.g. voluntary separation, termination for performance or misconduct, even
if the terminated participant elects to take retirement) will not be
eligible for payment of an award.
o Provisions for a Change in Control
The following provisions will apply should a Change in Control (CIC) of the
company occur:
- If neither the plan nor the participant are terminated due to a CIC
during the Plan Year, a full year award equal to the higher of 50% of the
maximum award opportunity or the award that results from projecting
performance results through year-end based on year-to-date performance as
of the CIC, if feasible, will be paid to all employees who are still
active as of December 31 of the Plan Year.
- If either the plan or a participant is terminated as a result of a CIC
during the Protection Period (as defined in the Retention Plans), a pro
rata award equal to the higher of 50% of the maximum award opportunity or
the award that results from projecting performance results through
year-end based on year-to-date performance as of the CIC, if feasible,
will be paid for the number of full months worked up until the date of
termination.
o Eligible "Base" for Incentive Purposes
For the purpose of incentive calculations, the salary range midpoint
effective December 31 of the Plan Year is defined as the participant's
eligible base unless the participant has been demoted during the Plan Year.
In this event, the officer's award may be prorated based on the period of
time worked at each level.
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AWARD DETERMINATION
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Awards may be earned for performance that provides value to our shareholders.
The incremental performance needed to fund awards is taken into consideration in
establishing performance thresholds and goals under the plan.
o Minimum Performance Threshold
The EPS "Threshold" indicated on the EPS performance scale in Attachment A
must be achieved before any payout will be made for the 2001 Plan Year.
o Maximum Award Opportunity
For the 2001 Plan Year, the maximum award opportunities are as follows:
Eligibility Level Maximum Award Opportunity
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Vice President 50% of Midpoint
Senior Vice President 60% of Midpoint
Executive Vice President 70% of Midpoint
Chairman, President and CEO 100% of Midpoint
PERFORMANCE CRITERIA
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The following stand-alone performance criteria are used to determine awards
under the plan:
o Corporate Total Shareholder Return (TSR): TSR is defined as PNM stock
price appreciation and dividends compared to the Philadelphia Utility
Index. The percentage points by which the company's TSR outperforms the
index by comparing TSR for the last 15 days of the current plan year with
the last 15 days of the prior plan year will determine the award for this
criterion. In order for a payout to be made for TSR performance, there
must be an increase in the PNM stock price. The scale provides for
interpolation of awards between performance targets.
o Corporate Earnings Per Share (EPS): EPS is defined as company-wide net
income related to running the business (excluding certain extraordinary
items or events that result in windfalls or penalties which are not in
keeping with the spirit of the plan) divided by the number of shares of
PNM common stock outstanding. The scale provides for interpolation of
awards between performance targets.
o Individual / Unit Performance: These goals, which are agreed upon at the
beginning of the Plan Year, are customized by officer.
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